Suppliers face prepay balancing act as additional support credits hit £150m

With 3.3m households on prepayment meters - many facing financial hardship - suppliers are under significant pressure to provide effective support while balancing strict regulatory and financial demands.

We’ve seen significant growth in the amount of Additional Support Credits (ASCs) being applied throughout the cost-of-living crisis, and based on previous trends, the number could exceed a record ~£150m when figures are shared later in the year.

In the absence of prescriptive rules on applying ASCs, varied approaches are being taken across industry. Many suppliers have focussed on self-service support for customers, along with proactively applying credits when necessary (e.g. by forecasting likely self-disconnection during winter). Others have attempted to introduce more robust validation of true customer needs, but at a high cost to serve and with the added risk of customers reaching their credit limit, resulting in self-disconnection.

While Ofgem have extended the allowance for reclaiming bad debt costs within the price cap, it’s important to remember that this is temporary and relies on suppliers operating at a ‘notionally efficient’ level. As a result, suppliers face a tricky balancing act between effectively managing customer support, operating costs, and bad debt.

In this article, we cover the steps suppliers should be taking to achieve this balance, including key reflection questions about how they’re set up to deliver.

Knowing who needs support, and how much support they need, is critical

Despite increased scrutiny, there’s no sign that prepayment meters will be phased out any time soon. As external attention on the management of prepayment customers remains high, it’s unsurprising that some suppliers have taken steps to reduce the risk of not providing appropriate support, putting in place self-service functionality for customers.

However, it's crucial to strike the right balance between the support provided and the associated operating and bad debt costs.

Although ~£9 of the current price cap provides suppliers with an allowance for bad debt associated with ASCs, this is granted at a notionally efficient level, rather than ‘free to all’. Since this is a temporary provision, suppliers must have robust processes to identify customers genuinely in need and tailor their treatments, based on risk and servicing requirements.

By doing this effectively, suppliers can provide targeted assistance to those who need it most, while minimising cost risks across service delivery and bad debt.

Below, we highlight five areas suppliers should assess to ensure they’re equipped to handle this challenge, which looks set to continue for years to come.

1) Understanding financial vulnerability

The foundation of effective support lies in understanding customers’ circumstances, using third-party data alongside high-quality internal checks to gain a comprehensive view of financial risk.

• How are you utilising external data on financial risk and enriching it with additional customer insights?

2) Tailored treatments based on financial status

Once you have a strong understanding of customer circumstances, you’ll be better placed to tailor treatments and effectively balance support and costs. This approach allows flexibility for those in need while ensuring customers without vulnerabilities are treated appropriately.

• How well are you tailoring treatments based on data about each customer’s financial and physical vulnerability?

3) Alignment of internal processes and systems

For front-line teams to operate efficiently, the processes expected of them should be clear, with systems well aligned to the ask. This may involve reviewing decision-making rights or adjusting user access.

• Are your processes well-documented, and are your systems aligned to support your teams effectively?
• Are your teams empowered to make the best decision for the customer?

4) Robust processes for non-engagers

Many customers may avoid contacting their energy supplier, even when in need, and instead face the distressing choice of self-disconnection. The methodology for identifying the needs of these customers should be water-tight, along with the timeframes for engagement.

Identifying and engaging with these customers is one of the biggest challenges suppliers face, and processes should include temporary safeguarding until a more thorough assessment can be completed.

• How comprehensive is your process for identifying non-engaging self-disconnectors, and is your temporary safeguarding robust enough?
• Do you offer an approach based on the best channel for the customer to engage?
• Are you making it simple for the customer to engage a third party / advocacy support e.g. through a debt charity or intermediary

5) Reporting, controls, and quality

Operational visibility is vital to success, so timely reporting around the key indicators associated with self-disconnection is critical. In parallel with that, so are the control indicators that give assurance that your desired strategy is well embedded, including quality and compliance checks within the operation.

• How easily can you verify that your processes are being followed consistently?

While these areas may seem straightforward, the quality of their implementation often varies significantly across suppliers. With ASCs reaching record levels, now is a valuable time to evaluate your maturity in these areas – ensuring you’re taking the right actions to achieve a balance between customer support, operating costs, and bad debt.  

How can we help?

At BFY, we have a proven track record of helping suppliers meet the specific demands of their prepayment portfolios, including lowering ASC levels, reducing and recovering debt on meters, and eliminating waste demand.

Our team can help with:

• Optimising business processes to achieve financial cost savings, and ensure effective and efficient delivery of ASCs
• Agent upskilling with bespoke training focused on vulnerable customers, supporting empathy, efficiency and process adherence
• Demonstrating regulatory compliance by setting up policies, processes, and guidelines for ASCs
• Instilling best practice control frameworks and reporting to maximise monitoring and enable assurance for third party audit

If you’re looking for opportunities to improve support for prepayment customers, contact Rachel Littlewood.